_On 11 April 2019, Pierre Gramegna, Minister of Finance, introduced Law no. 7431 to the Chamber of Deputies, which aims to transpose into national law Council Directive (EU) no. 2017/852 of 10 October 2017 on the Mechanisms for the Settlement of Tax Disputes in the European Union1 (the "Project").
The implementation of a more effective dispute settlement procedure has proved necessary in the European Union. Indeed, the number of situations of double taxation is likely to increase in the coming years and, moreover, significant shortcomings, in particular as regards the access to the procedure, its duration or its actual conclusion, have been able to be identified in the framework of the existing mechanisms (i.e. in particular the Double Taxation Avoidance Agreements ("DTT") and the Union Arbitration Convention), which allow for double taxation situations to persist.
The purpose of the Project is therefore to establish, in Luxembourg law, a procedure for the settlement of tax disputes concerning disputes that may arise between EU Member States, concerning the interpretation or divergent application of agreements and DTTs entered into by Luxembourg with one or more EU Member States and, which may lead to double taxation on the part of a resident taxpayer.
1. Starting Point: The Complaint
The Project stipulates that any person affected by a2 situation of double taxation within the meaning of the Project3 will be entitled to lodge a complaint4 with the Direct Contributions Administration ("ACD") regarding a dispute5 to request payment.
This claim must be lodged (i) within three years of receipt of the first notification of the measure leading to the dispute6 and (ii) simultaneously with all the competent authorities of the Member States affected by the dispute. However, a simplified procedure for Luxembourg residents and small and medium-sized enterprises is provided for by the Project. This will allow them to address only the ACD, which will then be in charge of informing all the other competent authorities that will be concerned.
Once the complaint has been lodged, the ACD shall, within two months, send the person concerned an acknowledgement of receipt of the complaint, together with the information of the competent authorities of the other Member States concerned, of receipt of the complaint. Additional information may be requested by the competent authorities within three months of receipt of the complaint, and the person concerned will in turn have the same deadline to provide the information requested by the competent authorities.
Within six months, the ACD will rule on the admissibility or rejection of the claim. It is to be noted that the claim will be deemed to be accepted when a competent authority has not made a decision of admissibility or rejection of the complaint within the given period. As a result, the ACD will be able to settle the dispute unilaterally within the same period, thereby terminating the dispute settlement procedure provided for by the Project. In both cases, the ACD will be obliged to inform the competent authorities of the other Member States concerned and the person concerned immediately.
The Project mentions three reasons why a competent authority may reject a claim within six months, namely:
- where the complaint does not contain the required information, or where the person concerned does not provide the additional specific information requested within the required time,
- in the absence of a dispute, or
- where the three-year time limit for lodging the complaint has not been complied with.
In the event that all the competent authorities of the States concerned have rejected the complaint, the person concerned may challenge, in Luxembourg, the competent Luxembourg authority’s decision to reject by introducing, through a lawyer's department in the court, an appeal before the administrative tribunal with an appeal before the Administrative Court remaining possible.
2. Amicable Settlement
Once the complaint is considered to be accepted by all the competent authorities concerned by the dispute, the latter will endeavour to resolve the dispute within two years, extendible by one year, as from the last notification of the admission of the complaint by one of the competent authorities of the Member States concerned.
If an agreement is reached between the competent authorities to resolve the dispute, it will be implemented in the form of a binding decision through the ACD, subject to the condition that the person concerned accepts this decision and renounces the right to any other remedy or withdraws from an appeal that has already been initiated7.
In the absence of an agreement reached between the competent authorities within the prescribed period (i.e. two years), the person concerned will be informed, including therein the reasons why it was not possible to settle the dispute amicably.
3. Settlement of the Dispute by an Advisory Board
In two situations specified in the Project, a person concerned may request the establishment of an advisory board8 with the ACD for the resolution of their dispute, namely:
- When a complaint has been accepted by only one of the competent authorities, but not by all said authorities, the advisory board will thus make a decision on the admissibility of the complaint; or
- To resolve the dispute when the claim has been the subject of a amicable settlement procedure (see II.) which will not, however, result in an agreement on how to settle the dispute within the time limit.
The request to constitute an advisory board must be presented within a period of fifty days from:
- The date of receipt of the notification of rejection of the application, or
- Information on the lack of an agreement in a an amicable settlement procedure, or
- The date of delivery of the judgement by the administrative courts (i.e. the administrative tribunal or, where appropriate, the Administrative Court) or the competent court or judicial body of the other Member State concerned and ruling on the admissibility of the complaint.
In this context, it is important to add that access to the dispute settlement by the advisory board will be rejected (i) as long as the decision to reject the complaint has not yet acquired the effect of res judicata, (ii) where the rejection decision will still be subject to litigation before the administrative courts or (iii) the decision to reject the complaint has been definitively confirmed by the administrative courts.
The advisory board called upon to rule on the admissibility of the complaint of the person concerned must do so within six months from the date of its constitution, it being specified that the advisory board must be constituted no later than one hundred and twenty days from the date of receipt of this application. The decision of the advisory board regarding the admissibility of a complaint will be notified to the competent authorities within thirty days, which will have, in the event of admission, sixty days to request the opening of an amicable settlement procedure.
It should be added that in the event one of the competent authorities concerned fails to set up an advisory board or to appoint independent persons, the possibility of judicial intervention is provided for by the Project. At the request of the person concerned, the intervention of the President of the District Court is provided in order to:
- Set up an advisory board when it has not been constituted within the prescribed period (i.e. one hundred and twenty days from the date of receipt of the request to rule on the admissibility of a complaint);
- Appoint an independent person and their alternate when the ACD has not done so;
- Appoint the two independent persons when neither the ACD nor those of the other Member States concerned make such an appointment.
In the absence of a request from the competent authorities to open the amicable settlement procedure within sixty days, the dispute shall be immediately transferred to the advisory board, which shall issue an opinion on how to settle the dispute. The opinion of the advisory board on the manner of settling the dispute - taken by a simple majority of its members - will be issued within a period of six months, extendible by three months, as from the date of its constitution, it being specified that the board will be deemed to have been constituted on the expiry date of the aforementioned period of sixty days. This notice will be based on the provisions of the applicable agreement or DTT, as well as any other applicable national rules.
The competent authorities concerned will have to agree on the manner of settling the dispute within a period of six months from the notification of the opinion by the board; they may deviate from the opinion by agreeing on the way of settling the dispute. If they do not reach an agreement on how to settle the dispute, they will be bound by the opinion of the board.
The final decision will be notified to the person concerned and must be implemented by the ACD regardless of the deadlines provided by Luxembourg law, provided that the person concerned accepts this decision and withdraws or waives all internal remedies.
In the event that the ACD has not implemented the final decision, the person concerned will be able to apply to the president of the administrative court to appoint a special commissioner to implement the final decision, in a period of three months from the acceptance of the final decision by the person concerned. By way of exemption from the standard Administrative Court procedural rules, the proceedings will be heard and the ruling from the President of the Administrative Court will not be subject to any appeal. The appointment of the special commissioner will withdraw the ACD from the case.
4. The exception: the Alternative Dispute Resolution Board
The Project allows for the establishment of an Alternative Dispute Resolution Board instead of an Advisory Board. This Alternative Dispute Resolution Board differs only from the Advisory Board in that it may be of a permanent nature while remaining more flexible in its composition and form in relation to the Advisory Board.
In this respect, the Alternative Dispute Settlement Board may use any other dispute settlement procedure or technique, including the "last offer" arbitration procedure, also known as "final offer arbitration". This will give the competent authorities great flexibility by allowing them to choose the appropriate type of procedure to resolve the dispute in a binding manner.
5. Procedural costs
The following costs will in principle be shared equally between the Member States concerned:
- The payment of independent personalities for an amount corresponding to the average of the amounts normally reimbursed to senior officials of the Member States concerned;
- The remuneration of independent figures which cannot exceed 1,000 euros per person per day of meeting.
However, it should be made clear that these costs will be borne by the person concerned if the competent authorities so agree when (i) the person concerned has withdrawn the complaint, or (ii) the decision rejecting the complaint has been confirmed by the advisory board.
Unless the competent authorities concerned agree to publish the final decisions in their entirety, the final decisions shall be published in summary. The ACD will provide the European Commission with the information to be published. In the event that either the competent authority or the person concerned does not consent to the publication of the final decision in its entirety, a summary report of the final decision will be published anonymously.
7. Effective Date
The law, once passed by Parliament, will apply to any complaint lodged from 1st July 2019 concerning disputes income- or capital-related for tax year beginning on or after 1st January 2018.
Notwithstanding the mechanisms already in place, international disputes relating to situations of double taxation have always been complex for the States concerned to resolve, both because of the length of the procedures provided for by the existing mechanisms and because of the difficulty of applying them.
The Project, while at first glance unclear for non-lawyers, at least has the merit of providing a clear legal framework for settling future double taxation disputes and should make it easier to resolve, within a now-established time period, situations of double taxation between Member States of the European Union.
1. This directive is based on Action 14 of the Tax Base Erosion and Profit Transfer Action Plan. The final report of Action 14, entitled "Increasing the Effectiveness of Dispute Settlement Mechanisms", contains concrete recommendations to enable States to overcome the obstacles to resolving tax treaty disputes, with the aim of enabling the timely and efficient resolution of these disputes.
2. The Project defines a person concerned as "the person or persons, including a natural person, who is a tax resident or are tax residents of Luxembourg or another Member State of the European Union and whose taxation is directly subject to dispute. "
3. The Project classifies double taxation as: "The imposition by Luxembourg and at least one other Member State of the European Union of taxes falling under an agreement or a DTT, on the same income or taxable wealth where such taxation gives rise to:
an additional tax burden,
an increase in the tax burden, or
a reduction or cancellation of losses likely to offset taxable profits. "
4. A complaint within the meaning of the Project is independent of a complaint provided by § 228 of the General Tax Law of 22 May 1931 (Abgabenordnung). The complaint must contain certain information including, amongst other things, the identity of the persons concerned, the tax years concerned, a reference to the applicable national and international legal provisions, information on all the appeals proceedings in place, information on any other amicable settlement proceeding under an agreement or convention giving rise to a dispute.
5. A dispute within the meaning of the Project is "any fact which gives rise to disputes arising from the interpretation and application of agreements and conventions entered into by Luxembourg with one or more Member States of the European Union and providing for the elimination of double taxation of income and, where appropriate, wealth. "
6. The person concerned will have the opportunity to file a claim even when the dispute-related administrative action has become final.
7. Covered here, as well contentious appeals brought before the courts, are the possible complaints introduced on the basis of § 228 of the General Tax Law.
8. The advisory board shall, in principle, include one representative of each competent authority concerned, and one independent person (a competent and independent individual) appointed by each competent authority, in addition to a president (in principle a judge), drawn from the list of independent figures, to be called by the European Commission (Luxembourg will have to appoint three independent figures).